The Inauthenticity Penalty for Copycats

Founded in 2007 by three brothers from Germany, Rocket Internet is one of the largest startup incubator companies in the world. The company has built and invested in more than 164 startups around the world as of 2025, generating more than 67 million dollars in annual revenue and employing about 42,000 people globally. The company’s strategy behind this success was simple, as co-founder Oliver Samwer says: “If there’s a clear business model that is proven to work, we will look at [copying] it”. As a result, they founded, for example, a “clone” of Amazon called Lazada in 2012, a clone of Airbnb called Wimdu in 2011, and a clone of Zappos called Zalando in 2008. And despite its exponential growth, the company faces widespread criticism for being a “copycat machine.”

It is not difficult to find other examples where consumers discount a second mover’s copying as being inauthentic. In contrast, however, there are also cases where followers’ copying doesn’t seem to be a problem. Some firms, such as Apple with Iphone, do not face such a criticism even when they enter the market later and provide products based on early movers’ idea. When artists draw on their predecessors’ work, it may be understood as paying homage. Purveyors of retro-fashion may sometimes be celebrated rather than be discounted. If there is such a variance that second movers’ copying is sometimes a problem, but not in other times, why is it so? Why and when do consumers discount second movers as inauthentic?

The answer, according to our research, has less to do with the quality of their offering and more to do with the process of attaining the market position. In our study published in Organization Science, my co-authors Stine Grodal (Northeastern University) and Ezra W. Zuckerman Sivan (MIT Sloan) and I show that late entrants often suffer what we call an inauthenticity discount – a penalty rooted not in what they offer, but in how they came to offer it.

The Unsung Work of Building a Nascent Market: “Legitimation Work”

When a company enters a brand-new industry, it faces a daunting task. There is no established trust, no regulatory framework, no proof that the business model even works. Early entrants must convince skeptical customers, regulators, and partners that the new form of business is reliable and worth their time. We call this “legitimation work” – the costly, risky effort of making a new market credible.

Think of the first startup trying to launch house calls on-demand via smartphone app. This would require persuading medical doctors to participate, lobbying regulators for compliance approval, and hiring expensive engineers to build a secure platform – before anyone knew whether customers would even want the service.

Once that hard work pays off, later entrants can simply walk into a market that someone else made safe and acceptable. They adopt the same model, avoid the risks, and reap the rewards. It’s an efficient and safe way of starting a business – but audiences notice.

Three Experiments, One Clear Finding

We tested our theory through three online experiments, each presenting participants with two competing healthcare startups offering identical on-demand doctor services. Study participants compared fictitious firms that had developed smartphone applications to provide on-demand house calls by doctors. In the first study, the participants were told that the first mover firm entered the market in 2015, while the second emerged a year later. When asked their preference, study participants were more likely to select the first mover. The preference was greater if the second mover was perceived to have copied both substantive and cosmetic features of the first mover’s offering, such as the language on its website.

In the second experiment, we varied when the follower entered, with one condition suggesting the follower may have participated in legitimation work and the other condition suggesting they did not participate at all. A company that had joined the market early – before it was fully legitimized – was perceived as more authentic and preferred over one that arrived only after the hard battles had been won.

In the third experiment, we gave participants direct information about whether the follower had participated in legitimation work. When it had – helping to establish industry standards, lobbying alongside the pioneer – the inauthenticity penalty largely disappeared.

Legitimacy Can be Copied. Authenticity Cannot.

One of our key distinctions is between legitimacy and authenticity. A late entrant can achieve legitimacy simply by adopting an already-accepted business model. But authenticity – the sense that a company is genuinely committed to its vision, not just riding someone else’s wave – is harder to appropriate.

We found that audiences implicitly ask: did this company believe in this idea when it was still risky? Or did it show up only once the path was clear? Our empirical evidence suggests that consumers approve of firms that have made efforts to legitimize a new industry from scratch. Those that free-ride on that “legitimation work” are seen as less authentic.

This matters because it adds an important dimension to the classic debate on first-mover advantage. The conventional view focuses on supply-side benefits: patents, brand recognition, customer lock-in. Our research adds a demand-side dimension: customers care not just about what a company delivers, but about the identity of the firm – what kind of firm it is in the process of delivering the offerings.

Strategies for Second Movers Entering a New Industry

Walk down any high street and you will spot them: the “original” burger joint, the bakery that claims to have invented the recipe, the coffee shop that has been there since 1978. Businesses have long known that being first is worth advertising. On the flip side, we devalue when chefs come with menus that mimic a competitor’s, when comedians copy jokes already told by others, or when academics propose research ideas that differ little from existing work.

For business leaders, especially for firms that are entering late, the implications are direct. Entering a market late is not inherently damaging; in fact, in terms of delivering the promised goods and services, it is an effective and safe way to start. But it is important to know that doing so may also cause them to be seen as opportunistic free-riders.

Although, all else equal, consumers prefer early entrants in new markets, second movers can still win. Followers who want to avoid the inauthenticity discount have options. They can enter before the market is fully settled, accepting some of the pioneer’s risk. They can actively contribute to shaping the industry – through lobbying, standard-setting, or public advocacy. And importantly, they should let the world know of their participation in legitimation work. At the same time, second mover firms can ensure their brand and communication signal genuine commitment rather than imitation, avoiding unnecessary copying of cosmetic features. Simply copying a winner’s playbook – even a successful one – carries a hidden cost and it takes active effort to compensate for it.